Fineos Corporation Holdings PLC

Thank you for standing by and welcome to the Finneos Corporation Holdings PLC full year results briefing. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Michael Kelly, CEO. Please go ahead.

Hello and welcome everybody to the Phineas FY25 results presentation. I'm joined here today by our CFO, Dean Lina. And between the two of us, we're going to give you an overview of the results presentation that we published on the ASX this morning. So I'll click on to slide two. And this slide really covers off, you know, our playbook, mission, vision and purpose. And it's what gives Finneas the real clarity and alignment within our team in terms of our focus on life, accident and health, in terms of our vision, in terms of protecting people from illness, injury and loss and making that accessible to everybody. And of course, our purpose, working with our carriers and employers to help them care for the people that they serve through the delivery of superior insurance technology. And more and more we see in the life accident health world a move from just, you know, being insurance and protection and giving, you know, payments to more caring in terms of return to work and helping people recover from illness, but also prevention and, you know, trying to keep people healthy before the kind of the situation where they need protection even eventuates. So we're seeing more and more of that trend of prevention in the marketplace from our own carriers and indeed we see that as a very positive situation. I'll turn now to slide three and cover the highlights for Phineas last year. So subscription revenues have grown to 75.6 million euros and that's up 8.2% on FY24. representing 54.6 of our total revenues. And our ARR coming into this year was 78.3 million at the 31st of December, up 10% from the 71.2 million on FY24. And then total revenues was up 3.9% on FY24, total revenue of 138.4. But on a constant currency basis, it's up 6.3%. And it would have been 1.41.7 million if we had reported on a constant currency basis. So slightly above the midpoint of our guidance that we gave last year. The gross profit, 105 million. Again, you know, gross margin 76.2%, which is really healthy. And gross profit is up 5% on FY24 and the gross margin is up from 75.4. And really we're operating at a really good gross margin level. And that's part of our target for next year, which I'll talk about at the end. Our EBITDA was 30.4 million and the EBITDA margin was 21.9%. Again, representing a healthy jump of 50% up on FY24. and the margin being up 15.2% on FY24. And our cash position at the end of the year was 27.8 million. And that was up again, you know, by over 8 million. Positive free cash flow within that was 6.4 million. And obviously there's no debt in this company as well. On the 6.4 million, there was an extra cash received from share options that had converted as well towards the end of last year. So added to the 6.4 is the 1.6 million in the note at the end of the page there, which brings us up to the 27.8. Turning to the next slide, slide four, we're looking at the operational highlights. And of course, the pre-cash flow is something we promised the market in November of 2024 when Ian and I came down and we did our roadshow. And we're delighted we've come through with that and a very healthy number it is too. But we're also thrilled that we've hit a net profit as well. And we didn't promise that to the market in FY25, but we're certainly very, very pleased with it. And really what we're seeing in our business is we're demonstrating higher margins from the cost efficiencies and the growth that we're generating out of the business. So overall, very pleasing in terms of this business coming back into free cash flow, and profitability as we move forward. Last year, we won four new name North American carriers licensing the Phineas admin suite for claims and absence. I just want to stop here and point out that we have rebranded our products because as of 25.4 release of Phineas, we actually released the full admin suite to all of our clients in the cloud. However, most of them are still only using claims in absence. So what we decided to do to make sure that our clients fully understood that underneath the water, you might say, even though they're using claims in absence today, but underneath the covers, they have the full access to the full admin suite when they license the product, which is phenomenal, really, to be able to give them that opportunity with no pre-integrated or no big SI project. that they could just switch on extra components of Phineas, and their users and their IT people are seeing a multiplier effect out of that. So we won four new names last year, albeit a little bit later than we would have liked. Certainly the conservative nature of our industry and just what has been going on in the markets over the last 12 months or so, the deals were a little bit slower coming in, but again, we're delighted. And every deal we win is a very long-term contract. So we sign our clients up for five years and we end up doing business into the long term and actually expanding and cross-selling across the customer base. So there's really growing evidence that Phineas is market leading in this employee benefits space. Group voluntary and absences are a real key focus. And that's why we're winning the deals. And two existing US clients also contracted to upgrade from the on-premise version, the old version of Phineas Claims to the Phineas Admin Suite for Claims. And one of those was a top 10 group carrier. So again, a sizeable deal for us in terms of the uplift and the momentum on both of those is going really, really well. So again, we're feeling our carriers really leaning in and increasing their commitments to us and really What we're doing is replacing very old infrastructure that they have with a modern core platform, cloud native and embedded AI and so on. And I'll talk about that as I go through. So we're seeing that significant momentum growing into a lot of activity in terms of go lives, upgrades and so on within our services and our product groups. And all of these things are moving much quicker for us. as we drive the efficiency in our business and really deliver the benefits of that to our clients. So we've also built the SI partnerships, and we're increasingly seeing the SIs now coming up to speed and actually delivering customer success with us, with our customers. So you probably will see some publicity over the next few months where we'll try and bring our SIs into some of the PR that we do on customer success with Phineas and so on. So that's going nicely. And again, we're looking to our SIs in North America now to give us the introductions and help us build relationships with our SI partners in other markets. So again, we've built that kind of confidence with our SIs and they're very happy to lean in and work with us. You would have seen recently an announcement with PwC but we work with EY, we work with Capgemini, and we work with other SIs as well, Deloitte and so on. So all of this is coming to fruition in terms of us moving more to becoming a product company. And then we're gaining a real multiplier effect from embedding AI in our product. So we have a kind of a head start on anyone in terms of people in the industry doing proof of concepts and stuff like that with AI. We have a real system. with a huge amount of data underneath this, which is kept real time. It's all compliant, it's secure. And therefore, when we put our agents to work on Phineas, we're seeing the results very quickly. And our carriers don't have to spend any additional time and money looking around the corners or trying to build stuff themselves. So more and more, we feel that the embedded AI in Phineas is gonna help carriers kind of relax and go forward. But we are in a very, regulated environment and our carriers are quite concerned about AI as well in terms of not automating decisions and stuff that need to be taken by humans and maybe causing any issues with the regulators or indeed with their clients. So AI is definitely something that we are seeing as a huge asset for Phineas and we're gonna basically grow the business off the back of that as we keep embedding. On the next slide, slide five, This one covers our people, and I won't go through this one too much except to say that high numbers of utilization, very high employee retention rates, and, you know, we're down to 1,009 people at the moment. And 16.9% of those are actually contracted in. So we've kept flex in our workforce, which means we can cut back on our workforce, our grower workforce, depending on how things go and so on. But we are in a very strong position with, you know, contractors and with partners who supply resources to us. And they've scaled up on Phineas and are very dedicated to us. So a good story there in terms of the people side. Slide six is the revenue breakdown. And again, you know, no surprise really that North America is our biggest region. And indeed, 80% of our revenues are coming out of North America. We've had some nice wins at the end of the year, and our customers are increasingly doing more business with us in that region. However, we are very keen to look at other regions and to start the work around building ourselves up in the other regions. The EMEA region, we did lose a legacy customer, a smallish customer by U.S. standards, but still we lost that, so the revenue went down in the U.K., But, again, that customer was non-strategic to us. They'd been around for a long, long time with us. And services revenues, we're not aiming for a big growth in our services revenues. We're really aiming for the growth on the product side. So they've kind of leveled off as well. So that kind of concludes my section for the moment. I'm going to hand over to Ian who will cover off the financial slides with you. Thank you. Thank you, Michael, and welcome everybody to this full year briefing of Phineas. And what I'll do now is give you a bit more insight into the financial performance of the company. So if you'll move now to page eight, which is back to the revenues. Obviously, as Michael just said, there are focuses very much on that product revenue subscription fees. We've grown that ARR. We've signaled to the market repeatedly over the last few years that we see services remaining reasonably flat, didn't we? 2.2, so spot on the same. But the subscription revenue, what's driving that is those four new customers. We signed up two of them at the end of Q2. We signed up another two at the end of Q4. So they didn't fully contribute to the growth, but they were a factor in terms of that growth. The two migrations, one of them was quite significant, as Michael said as well. That's going from on-premise to the cloud. And then we had the traditional pricing, and some have moved up a level in terms of what they're consuming for us. So we're very pleased with that growth in the subscription fee, which in turn gave us an ARR growth of 10%, which is very, very positive. As stated before, the initial license fee, you can see a year-on-year reduction in that. Initial license fees pertain singly to our on-premise customers. So anytime they require new licenses, then we charge a fee for that. But we have less and less of them. We have less and less activity there. So you can see consequences of revenue going down. And as we move forward into FY26, you know, I don't see it getting any higher than that. I see it going down a smidgen again. But it is progressively declining. So that's the revenue side. Cost of sales, we've seen an improvement in that compared to FY24. We did have some software costs increases. And we also had to make a provision for an estimated software spend. And just to explain what that actually means, because that actually also impacted the end patent number we gave within this presentation. And that's with our main platform provider, Amazon AWS. Back in December 2022, we signed a five-year contract with them with a committed spend. Any of you that are familiar with the way they contract, the more you commit to, the bigger the discount you get. We made a commitment, but due to the efficiencies we've been driving over the last few years, we're spending less than was originally anticipated. So that's meant that when you look at the full duration of the spend, It means we're probably going to spend less than the five years that we originally estimated. So we had to make a provision for that in the accounts, but the plan is we go back and renegotiate with Amazon AWS for another five years, sometimes during the course of this year. But to comply with accounting practices, we just had to put that provision in. The full size of that provision is about $2.7 million. I know that $1.0 million is allocated against cost of sales. So really that's what's impacted the costings there. In terms of overall operating expense, our initiatives around driving efficiency, around labour being in lower cost regions, looking at better automation through the application of AI as well as just getting economies of scale, have seen the ongoing OPEX going down. So you see a good positive outcome there year on year. percent reduction and an EBITDA very positive move on that you know over 10 million increase compared to the previous year that brings us up to a margin of 21.9 percent and as you know we've committed to the market to achieve 25 percent in FY27 so we're well on track if you go back to FY23 that was around nine percent last year 15.2 21.9 so you can see we're really focused on trying to drive those numbers through And as Michael said, you know, ultimately we got a net profit after tax of $1 million. We never signaled that to the market. We weren't targeting that directly. We were very, very focused on achieving the positive free cash flow. But needless to say, we're delighted with that, and we only see that trajectory improving year on year. And that's a massive turnaround, obviously, from a $5.8 million loss that we incurred in FY24. Moving on to the next page, Another commitment that we made was to keep on increasing that annual subscription fee. You can see the CAGR now is at 12.3%. As I mentioned in the previous slide, we've increased our ARR by 10%. So that's the key figure that we're looking at as well. And then, of course, we've got the big increase in terms of subscription fees. So we increased the percentage of that. And to achieve the targets that we're talking about in So, again, we're extremely focused on that, whereas we're not as focused on revenue in terms of generating that. Now, it's not because we don't want service revenues. It's because we want to work with the SIs. They will invoice directly. The more sophisticated we make the product, the less service are required. For some of our very large customers who are going to generate even larger recurring revenue for us moving forward, they want to take on self-service capabilities rather than get the service from Phineas. For obvious reasons, you know, in terms of their cost management, So all those things impact service fees, but for the right reasons. We had signals back in November 2024, that kind of trajectory, that kind of scissor movement where revenues will go up and costs go down, and we flagged that we're going to see that crossing over. We're almost at touching point there in FY24, but you can see the crossover in FY25, and obviously that's why we're able to, you know, as well as a positive free cash flow situation. So we expect to see that margin continue to increase. That trajectory, you know, it's not going the opposite direction moving forward. It's going to keep going that direction. If we move on then to slide 10, just looking at the OPEX, which you saw the headline up above, look at all the online items there, you know, excluding search and development, which I'll come back to in a moment, we can see a decrease in cost. Common theme, know is with respect to the headcounts and where they are actually located. But there's some other elements there, like on the G&A, you'll also see FX movement, you know, there's a share option charge, increasing it, or decreasing the cost. But that was offset by a decrease in software costs. We had to get more software to the organization to run our business, and some restructuring costs that cost regions our overall headcount year on year is reasonably consistent it's just the work is getting done in different regions without degrading the quality of the work that's been really important to us you know so as we've said before we've had overlap of resources to make sure handovers work very well we have a high demand environment you know where customers expect an excellent service and excellent outcome you know so we've got to make sure we've been managing that very very tightly and we have with respect to r d We've seen some higher software costs, which includes the provision. There's another $0.8 million put against that in terms of that provision that I mentioned earlier on. Slightly lower capitalized R&D costs, but only slightly lower, and we had restructuring costs. Most of the restructuring that we did in FY25 related to our R&D teams. We had resources in higher cost regions, and we decided that we would look to relocate those roles into lower cost regions. So consequently, the restructuring cost was also higher with respect to the R&D team. We, as always, we serve the right, you know, and we will stick in this. If events dictate that, you know, more investment is required in R&D, we are a technology company, then we will look to do that. But still and all, if we move on to the next slide, What you can see is that, you know, R&D as a proportion, and this excludes overhead costs. You know, this is people costs. R&D as a percentage of the overall revenue is continuing to improve. We've signaled that in FY27, and we're looking to get that down to 30%. So you can see the trajectory there is moving in the right direction. Last year it was at 37%. Sorry, the year before last, it was at 37%, and last year it was at 34.7%. So we see that continuing to improve and getting more into industry norms in terms of that percentage. We're still going to invest heavily in R&D, and as we've said before, we will continue to invest in the admin suite. There's all those capabilities customers will require, particularly those customers that need to move off legacy, may require some extra function take on that business, which makes perfect sense for us in order to increase the annuity fee. But progressively, we're investing more in AI and digital capabilities and capabilities to enable better self-service and better onboarding onto our product set. So it's really exciting that we can actually switch that focus to allow customers to move onto our product set in a more effective way. So I don't expect to decrease the amount of money we're spending in OIT, but certainly as a percentage, has been evidenced here. We move on now to slide 12. I don't want to dwell too much into the balance sheet. The next slide's going to talk about cash, and I'll talk about cash there. So development expenditure, that's really the capitalized R&D spend is a little bit ahead of monetization. We expect that to balance out, you know, maybe in 27 there'll be similar figures. There was a bit of catch-up taking place there. We've seen a slight increase as well in trade accruals, but that's really due to an increase in payroll, share option excellence gains, et cetera, and a little increase in deferred revenue, again, because of the fact that we're signing up subscription fees. So we had some new-name customers signed up towards the end of last year. So they'll be put in there along with other provisions. And there's the provision 2.4 in relation to the software spend, apologies. So 2.7 earlier on, I believe. It's 2.4 million. So moving on now to slide 13. So the next cash generated from operation activities, vast improvement there, 38.6 versus 18.8 due to the increased revenue, decreased costs, We're very, very positive. We've got some additional cash in from share options that are exercised of 1.6 million. As Michael mentioned earlier on, if you add in the 6.4, which is the positive free cash flow we generated, 1.6 on top gives you that 8 million difference at the bottom line there, which is a 14.4% increase. So we're very proud of that. We knew that that was very important to the market, very important to us too. Prior to IPO, we were always a profitable company. It's very much in our DNA. We've made the bet. ...recurring revenues and getting back to a positive pathogen situation, which we plan to continue to improve on as the years roll by. So that's it from me. I'll pass back to Michael for the outlook and key priorities. Thank you, Ian. Okay, I'm going to switch over to slide 15. And I'd just like to mention that we won a very prestigious award for embedded AI in the Phineas Admin Suite from the Irish Technology Association. And this was an award which was competed for by all comers. You know, we have a lot of multinationals from the States, particularly in Ireland. It's a hub for EMEA, but also local companies. And we were really called out for the kind of thoughtful way we put the AI into the system and how it was, you know, agentic and assistive in terms of driving better outcomes and presenting users affiliates with, you know, an opportunity to really improve the I suppose, taking the crud out of the back office and driving more positive outcomes for customers and clients. So we were delighted with that. That was towards the end of last year. In terms of key priorities, though, going forward, we're still very focused on Guardian, who are ahead of schedule in terms of their own goals that they set for themselves. We'll continue to drive new business onto the system and make sure that everything goes on this year. But also we're starting the migration from the middle of the year. And we're excited about that because we're in the business of legacy system retirement. And they have a multi-billion book that's going to come across to Phineas. And we're going to continue to scale and upsell large customers. And again, with a focus on benefit realization of the product they have. but also looking at legacy migration and taking their legacy systems out, which with some of these carriers, the scale that they're at is a multi-year project. We've been at it now for three or four years, but we've still got some time to go. But as they grow their business on Phineas, our fees increase. And I want to point that out in this call out. Our fees are not based on perceived SaaS type fees. Our fees are basically aligned with our customer success. So as our customers grow their business, we grow our business. And we're very much in partnership in a long-term relationship with these clients. We'll also increase new business sales. And, you know, our partners are starting to work with us now to identify opportunities where they think our product can fit. And so we're going to see more activities with the SIs. And as we progressively embed AI in the Phineas platform, we're going to continue to see improved platform performance. And already the feedback is very positive. And let's put it this way. We're in very early days in this. We're in a regulated environment, highly regulated with very conservative insurance carriers. They take years to make decisions. So you can imagine when you bring something like this in, that they're very, very keen to make sure that it's all compliant and it fits with the regulator. So, again, this is going to take a few years over in the coming couple of years, but we're getting our customers more comfortable with this. And we have a couple of big customer meetings in March and in Sydney and also in New York. And we'll be talking about this a lot more with them. We're going to continue to drive internal efficiencies through the usage of AI. And I think every company is adopting AI and taking advantage of that, you know, across the whole spectrum of the business. And then, you know, pipeline in terms of deal conversions of continuous absence for employer. We have actually done a lot of work in this area in terms of making the product deployable with employers in a much simplified fashion. but we're also talking to some of our carriers about partnership around this and how we could work together because our primary goal is actually the carrier market and to make absence a real part of the employee benefits industry. Turning to the last or the second last slide, I think it's slide 17. So revenue guidance for this year, we're going to put it out there at between 147 and 152 million. And this is really supported by the strong pipeline we have in. Albeit, as I said last year, we saw that pipeline. It just took a long time to get negotiations and decisions and so on done, but we're very optimistic about this year. We continue the strategy of driving operational efficiency with Infinius, and we're going to continue to drive up that positive cash flow and profitability in the business for this year. We're also continuing to drive sales in North America, but we're actually looking to expand our product outside of our target market of North America. And we do see some opportunities to do that, particularly with the multinationals in different countries. And so we're looking at that as well at the moment. And the pipeline remains solid, you know, and very much Finneas being the market leader in employee benefits in North America today. So switching to my last slide, slide 18, subscription fees. You and I put these guidelines out in 2024. And we're still confident we'll make these guidelines in terms of subscription fees moving up to 65% of the total revenues in FY27 and 75% or thereabouts in 2029. R&D investment will decrease, as Ian said earlier, to 30% next year and 25% in 2029. And again, as Ian said, we reserve the right to expand that R&D if we see new opportunities. But that's the way things are trending in terms of percentage of total revenue for R&D spent. And then the gross margins and EBITDAs, they're almost where we said they'd be back in 2024. They're almost there now, as you can see from last year's results. But we'll drive them on and we'll get them up to 80% for gross margins and 40% for the EBITDA. So MakeInfinity is a very strong company in terms of future growth. I just lastly would like to point out the slide 19. We have an investor roadshow, which we'll be hosting on the 25th in Sydney. And all the details are made available. And if you contact Howard or Jackie in Atomic, you can get all the details. We're looking forward to it. So that's it for me. And for me, I think positive year, looking forward with a very positive attitude in terms of the future. and we're open for questions now. Thank you.

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